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Journalism of Courage
Sameer Majhi got a job last year with a public-sector company in Orissa. The first big purchase he wanted to make was a Hyundai Santro. However,as he did not have any savings he decided to delay the purchase by a year. Now that he has saved enough money for the down payment,he wants to take a loan to buy the car. He asked Express Money to suggest which lender would offer him the best loan rates. While interest rate is definitely the most important consideration while taking a loan,certain other issues also require your attention.
Choose the right car. The first step in the entire purchase process is to decide which car you want to buy. Before deciding,evaluate the features of comparable products. For instance,if you plan to buy a Hyundai Santro,compare its features with those of other hatchbacks in the category such as Maruti Wagor R,Zen Estilo and Chevrolet Spark. Likewise,if you intend to buy a Swift Dzire,look at the other sedans in the same price range,such as Hyundai Accent,Mahindra Logan and Ford Ikon.
Choose the lender. The next step,says Divya,is to select the lender. After last years financial turmoil,private banks have been reluctant to extend vehicle loans. In the present scenario,it is better to opt for a public sector bank PSB as their rates are competitive and they appear keener than their private sector counterparts to extend credit. Even car companies are saying that PSBs are more willing to lend and that their rates are more attractive, he says.
Most dealers have tie-ups with banks for vehicle financing,and their direct selling agents DSAs quote very competitive interest rates. Nonetheless,the borrower should also take quotes from other financial institutions and banks. Many auto makers have finance companies belonging to their own group,such as Mahindra Finance,Bajaj Finserv,etc.,which might give preferential rates to a borrower buying a Mahindra or a Bajaj vehicle. It could be the case that a group NBFC might provide lower rates to the buyer of a vehicle from a group company. However,it is advisable that customers collect information from other banks and financial institutions as well, says Divya.
Fixed or floating. Next,decide which type of loan fixed or floating you would like to take. Typically auto loans are short-term loans: they are taken for a term of three to seven years. The difference between a fixed and a floating rate for auto loans is generally 1-2 percentage points,so it is preferable to take a fixed-rate loan and avoid the interest-rate cycle, says Harsh Roongta,chief executive officer,apnapaisa.com. If you take a floating-rate loan in case of a long-term loan,say a home loan,whose tenure could be as long as 20 years,the interest rate would get averaged out as you pass through multiple interest-rate cycles. However,the probability of incurring a heavy cost if interest rates rise is quite high in the case of a short-term loan such as a car loan.
Higher EMI,shorter tenure. Another point to remember is that since auto loans,unlike home loans,do not fetch the borrower any tax benefit,he should borrow the least possible amount and make the maximum possible down payment. If your pocket permits,opt for a higher EMI and a shorter tenure. Further,while it is advisable that the borrower should opt for the shortest possible tenure,he should never prepay the loan even if his means permit. The prepayment charges in case of auto loans are steep,going up to 6 per cent of the loan amount,so a borrower should pay the regular EMIs and close the loan, says Roongta.
Bargain hard. With the economy on the path to recovery,steep discounts in the auto sector are a thing of the past. However,a buyer should always negotiate for discounts.
Roongta offers another practical suggestion. When one goes to buy a vehicle,the dealer in almost all cases emphasises the accessories that are being given free of cost. The dealer might say that the music system installed in the car is worth Rs 5,000 or the floor mats cost in the market is Rs 3,000. This distracts the customer who feels that the car is loaded with freebies,so he does not press for more discounts. But the actual value of the goods being offered for free would be half of what the dealer claims. So a customer should always ask the dealer for cash discounts in lieu of accessories. Accessories should be the icing on the cake and the customer should not focus too much on them, he says.
swarup.chakrabortyexpressindia.com
